Corporate and Economic Laws · Accounts and Audit

Books of Account and Financial Statements under the Companies Act, 2013

Updated 11 October 2026 · Fact-checked

Section 128 requires every company to keep books of account at its registered office on the accrual basis and double entry system, and keep them for eight financial years. Section 129 requires financial statements that give a true and fair view, follow notified accounting standards, and follow Schedule III. Holding companies also prepare consolidated statements.

Understand Books of Account and Financial Statements

Chapter IX of the Companies Act, 2013 sets out how a company records its transactions and reports them to its members. Two sections do most of the work: Section 128 on books of account and Section 129 on financial statements.

Think of it in two layers. Books of account are the raw record: ledgers, vouchers and papers. Financial statements are the output built from them and presented to members at the annual general meeting.

Under Section 128, every company must keep books of account, other relevant books and papers, and financial statements for every financial year. They must give a true and fair view of the affairs of the company, including its branches. They must be kept on the accrual basis and the double entry system. Cash-basis or single-entry books do not meet the law.

Under Section 129, the financial statements must give a true and fair view, comply with the accounting standards notified under section 133, and follow the form in Schedule III. Insurance companies, banking companies, electricity generation or supply companies, and other classes whose form is set by their own Act are outside this Schedule III requirement. The Board lays the financial statements before every AGM. A company with one or more subsidiaries also prepares consolidated financial statements, in the same form and manner as its own, and lays them before the AGM along with its standalone statements.

The Board's report accompanies the financial statements. Its contents come from Section 134, which is not in the text supplied for this page. Revise Section 134 and the signing rules from your study material alongside this topic.

Key rules to remember

Basis and system of books (Section 128(1)): Books = accrual basis + double entry system, kept for every financial year; They must give a true and fair view and explain transactions at the registered office and branches.
Place of keeping books: Registered office; or another place in India decided by the Board, with notice to the Registrar within 7 days; The notice must give the full address of the other place. Books may also be kept in electronic mode as prescribed.
Branch office (Section 128(2)): Proper books at the branch + proper summarised returns sent periodically to the company = deemed compliance; Applies to branches in India or outside India.
Inspection (Section 128(3)): Any director may inspect during business hours; inspection of a subsidiary only by a person authorised by Board resolution; For financial information kept outside India, copies must be kept and produced for inspection by a director, subject to prescribed conditions.
Preservation period (Section 128(5)): Books and vouchers for not less than 8 financial years immediately preceding the current year; If the company has existed for less than 8 years, keep them for all preceding years. After an investigation order under Chapter XIV, the Central Government may direct a longer period.
Penalty under Section 128(6): Fine of ₹50,000 to ₹5,00,000 on the managing director, whole-time director in charge of finance, CFO or other person charged by the Board; The imprisonment limb was removed with effect from 21 December 2020. Only a fine remains.
Financial statements (Section 129(1)): True and fair view + notified accounting standards (section 133) + Schedule III form; Items must be in accordance with the accounting standards. Insurance, banking and electricity companies, and classes with a form fixed by their own Act, are excluded.
Consolidation (Section 129(3)): Subsidiaries exist: standalone statements + consolidated statements, both laid before the AGM; Attach a separate statement of the salient features of each subsidiary's financial statement, in the prescribed form.
Deviation from standards (Section 129(5)): Disclose: the deviation + the reasons + the financial effect, if any; Applies where the statements do not comply with the accounting standards.
Penalty under Section 129(7): Imprisonment up to 1 year, or fine of ₹50,000 to ₹5,00,000, or both; Applies to the MD, whole-time director in charge of finance, CFO or other person charged by the Board. If none of them exists, all directors are liable.

How to solve Books of Account and Financial Statements questions

Most questions on this topic are short case problems asking whether the company complied and what follows. Use the same path each time.

1Identify the section being tested: Section 128 (keeping books) or Section 129 (preparing statements), or both.
2Pull out the facts: where the books are kept, the basis of accounting, the time period, the type of company, and whether subsidiaries exist.
3State the rule in plain words with its exact condition, such as 7 days, 8 financial years or accrual basis.
4Apply the rule to the facts and say clearly whether the company complied.
5If it did not comply, name the consequence: who is liable and the penalty under Section 128(6) or 129(7).
6Close with a one-line conclusion, and mention any proviso or exception that applies, such as the electronic-mode proviso or the Schedule III exclusion.

Quickest way: Trigger-word check

When to use it: Use this for MCQs and for the opening of a case answer, when you have under two minutes.

Find the trigger word in the question: place, basis, period, branch, inspection, subsidiary, deviation or penalty.
Match it to the rule: place means Board decision plus 7-day notice; basis means accrual and double entry; period means 8 years; subsidiary means consolidated statements.
Check the numbers: 7 days, 8 financial years, ₹50,000 to ₹5,00,000.
Eliminate options that mention cash basis, single entry, or imprisonment under Section 128.

Common mistakes in Books of Account and Financial Statements

Saying books may be kept on the cash basis or single entry for small companies
Students carry over practice from small proprietors.
Fix: Section 128(1) applies to every company. Books must be on the accrual basis and the double entry system.
Writing that books must be kept for 8 years from the date of the transaction
The wording is remembered loosely.
Fix: The rule is a period of not less than eight financial years immediately preceding a financial year, with vouchers. A company younger than 8 years keeps all preceding years.
Stating that Section 128 contraventions carry imprisonment
Older notes still show the imprisonment limb.
Fix: The words on imprisonment were omitted w.e.f. 21 December 2020. Section 128(6) now provides only a fine of ₹50,000 to ₹5,00,000. Section 129(7) still provides imprisonment up to one year, or fine, or both.
Forgetting the 7-day notice when books are kept at a place other than the registered office
Students remember only that the Board may decide the place.
Fix: The Board may pick another place in India, but the company must file written notice with the Registrar within seven days of the decision, giving the full address.
Assuming all companies must follow Schedule III
The first part of Section 129(1) is remembered without the second proviso.
Fix: Insurance, banking and electricity generation or supply companies, and classes whose form is set by their own Act, are excluded.
Treating consolidated statements as a replacement for standalone statements
The word 'consolidated' suggests one combined set.
Fix: Section 129(3) requires consolidated statements in addition to the standalone statements. Both are laid before the AGM.

Worked examples

Example 1

Shreeji Textiles Ltd, a company in Surat, has been in existence for 5 years. Its Board decides to keep the books of account at its Ahmedabad factory office instead of the registered office, and the finance head asks (a) what the company must do and (b) how long the books must be preserved.

Show the solution

Identify the rule: Section 128(1) first proviso allows the books to be kept at another place in India if the Board decides so.
Both places are in India, so the Board's decision is permitted.
The condition: within seven days of the decision, the company must file written notice with the Registrar giving the full address of the Ahmedabad office.
For preservation, Section 128(5) requires books relating to not less than eight financial years immediately preceding a financial year.
The company has existed only 5 years, so it must keep the books for all preceding years, together with the vouchers relevant to any entry.

Answer: The company may keep the books at the Ahmedabad office, provided it files written notice with the Registrar within 7 days of the Board's decision, giving the full address. Since it is less than 8 years old, it must preserve the books for all preceding years with vouchers, in good order.

Example 2

Kaveri Industries Ltd has two subsidiaries. At its AGM, the Board lays only the company's own financial statements. A member objects. Examine the position and state who is liable.

Show the solution

Section 129(2) requires the Board to lay the financial statements for the financial year before every AGM.
Section 129(3) says that where a company has one or more subsidiaries, it must also prepare a consolidated financial statement of the company and all its subsidiaries, in the same form and manner as its own.
The consolidated statement must also be laid before the AGM along with the standalone statement.
The company must also attach a separate statement of the salient features of each subsidiary's financial statement, in the prescribed form.
Section 129(7) fixes liability on the managing director, the whole-time director in charge of finance, the CFO or any other person charged by the Board. If none of these is in office, all the directors are liable.
Penalty: imprisonment up to one year, or fine of ₹50,000 to ₹5,00,000, or both.

Answer: The member's objection is valid. Kaveri Industries should have laid consolidated financial statements with its standalone statements, and attached the salient features statement for the subsidiaries. The officers named in Section 129(7) are liable to imprisonment up to one year, or a fine of ₹50,000 to ₹5,00,000, or both.

Exam tips

Memorise the numbers: 7 days, 8 financial years, and the fine range of ₹50,000 to ₹5,00,000. These are common MCQ targets.
Know the difference between Section 128(6), which carries only a fine, and Section 129(7), which carries imprisonment, a fine, or both.
In case answers, name the officer who is liable: the MD, the whole-time director in charge of finance, the CFO or the person charged by the Board.
For standalone versus consolidated questions, say that consolidated statements are prepared in addition, in the same form and manner, and laid at the same AGM.
Do not give the contents of the Board's report from memory of Section 134 unless you are sure. Revise that section separately and list its items point by point.

Practice questions from Accounts and Audit

Books of Account and Financial Statements in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Books of Account and Financial Statements: frequently asked questions

What does Section 128 of the Companies Act, 2013 require?

Every company must keep books of account, other relevant books and papers, and financial statements at its registered office, on the accrual basis and the double entry system. They must give a true and fair view. Books must be preserved for not less than eight financial years.

Can a company keep its books of account outside the registered office?

Yes. The Board may decide on another place in India. The company must file written notice with the Registrar within seven days, giving the full address. Books may also be kept in electronic mode in the prescribed manner.

What is the difference between standalone and consolidated financial statements?

Standalone statements show the company's own affairs. Consolidated statements combine the company and all its subsidiaries. Under Section 129(3), a company with subsidiaries prepares both and lays both before the AGM.

What is the penalty for not complying with Section 129?

Under Section 129(7), the managing director, whole-time director in charge of finance, CFO or other person charged by the Board is liable. If none is in office, all directors are. The punishment is imprisonment up to one year, or a fine of ₹50,000 to ₹5,00,000, or both.